Regulatory Update: Land Procurement for Toll Road Projects

6 min read

Over the past decade, Indonesia has witnessed substantial advancements in the construction of toll roads. Essential toll roads supporting the transportation of both cargo and passengers are now becoming interconnected. The development and construction of toll roads is closely tied to pivotal factors such as land procurement and financing thereof. Following the issuance of Law No. 2 of 2012 on Land Procurement for Public Interests ("Law 2/2012"), the government can focus on the need to accelerate the land procurement process to enable more seamless infrastructure development.

In Indonesia, land procurement for toll road development is organized by the government. Procured land will then be owned by the government. Funding for the land procurement process will typically be sourced from the State Budget (APBN). In practice, given the significant land requirement for toll road development, the government may require alternative funding source from the private sector to finance the land procurement. To address this, the government has established a guideline on financing for toll road land procurement by toll road business entities (Badan Usaha di Bidang Jalan Tol – "Business Entity")1. This guideline provides the legal basis for the Business Entity to finance land procurement costs.

The government recently issued the following regulations in relation to land procurement by the Business Entity:

  1. Minister of Public Works and Housing ("MOPWH") Regulation No. 12 of 2023 on Toll Road Land Procurement Financing by Business Entity (Badan Usaha) ("Regulation 12/2023") which revokes the previous regulation on toll road land procurement under Minister of Public Work Regulation No. 10/PRT/M/2006 of 2006 on Utilisation Procedures of Funds of the Business Entity for Toll Road Land Procurement; and
  2. Presidential Regulation No. 78 of 2023 ("Regulation 78/2023") which amends the Presidential Regulation No. 62 of 2018 on Handling of Community Impact on Land Procurement for National Development.

Regulation 12/2023

Key changes and features under Regulation 12/2023 are explained below.

Funding by Business Entity

Under Regulation 12/2023, land procurement for toll road projects that are initiated by the Business Entity (i.e., unsolicited projects) will be financed by the Business Entity. Further, a Business Entity may finance land procurement for the following toll road projects:

  1. Expansion of government-initiated (i.e., solicited) toll roads ("Business Entity Funded Expansion"); or
  2. Government-initiated (i.e., solicited) toll roads, where financing by Business Entity is agreed under the Toll Road Concession Agreement between the Business Entity and the MOPWH (Perjanjian Pengusahaan Jalan Tol or "PPJT") ("Business Entity Funded Project").

In relation to the above, the Business Entity self-funding the land procurement will translate to much higher project costs. Cost recovery will rely solely on users’ tariff as toll road projects in Indonesia typically operate based on a user-pay model. In contrast, for national strategic projects (known as Proyek Strategis Nasional or PSN), the legal framework provides that the land procurement costs spent by the Business Entity will be reimbursed by the government via the mechanism of LMAN (State Asset Management Institution or Lembaga Manajemen Aset Negara) and bridging fund.

Establishment of Land Procurement Team (Tim Pengadaan Tanah or "TPT")2

Previously, TPT was appointed by the MOPWH without any involvement of the Business Entity. Following issuance of Regulation 12/2023, the Business Entity is now required to deliver a TPT establishment request to the General Director (as defined below).

TPT is appointed by the MOPWH based on the proposal of the General Director of Roads and Bridges (Direktur Jenderal Bidang Jalan dan Jembatan or "General Director"). In order for the MOPWH to make the appointment, the Business Entity is required to deliver a TPT establishment request to the General Director. Timing of delivery differs as follows:

  1. Business Entity initiated toll roads: the request is to be made following issuance of license of initiative from the MOPWH;
  2. Business Entity Funded Expansion: the request is to be made after such expansion is included in PPJT amendment; and
  3. Business Entity Funded Project: the request is to be made after the PPJT is executed.

Land Procurement Financing Components

The items to be financed by the Business Entity in relation to toll road land procurement are as follows:

  1. Land compensation costs; and
  2. Operational and supporting costs.

The above costs are calculated as investment value and stated in the PPJT. If the actual costs for land procurement exceeds the agreed amount in the PPJT, the Business Entity may submit proposal to Toll Road Regulatory Body (Badan Pengatur Jalan Tol) to obtain approval as basis for the PPJT to be amended.

The fund to finance the above costs must be maintained in a special current account designated for the relevant purpose (as prescribed above). The bank account for the land compensation costs is to be opened in the name of the Business Entity whereas the bank account for the operational and supporting costs is to be opened in the name of TPT.

Budget Planning

Under Regulation 12/2023, there are two rounds of approvals from the General Director with regards to the land procurement budget:

  1. TPT prepares overall budget and submit to the General Director to be approved;
  2. General Director approves overall budget;
  3. TPT prepares annual budget to be agreed between TPT and Business Entity;
  4. TPT submits annual budget to the General Director to be approved; and
  5. General Director approves annual budget.

The same approval process is to be conducted for any amendment to the annual budget in an ongoing year.

Compensation Payment

Compensation to beneficiaries can now be made through the following methods:

  1. Direct payment to the beneficiary; 
  2. Deposited to district court – Business entity transfers money to district court; or
  3. Land or building replacement – Business Entity transfers money to owner of replacement land or notify TPT if replacement building is ready (as relevant).

Regulation 78/2023

Regulation 78/2023 provides the Government with more ease in conducting land procurement for national projects. Key changes and features under Regulation 78/2023 are explained below.

Compensation Eligibility

Prior to Regulation 78/2023, the People (Masyarakat) eligible for compensation were those who:

  1. have occupied and controlled a land physically of at least 10 consecutive years; and
  2. occupy and utilize the land openly with good faith and are not contested, acknowledged nor corrected by the land owner or local authorities will be eligible for compensation.

Following Regulation 78/2023, the relevant Governor (Gubernur) may determine a differing period of physical land occupation and utilization than as set out in paragraph (i) above, based on coordination meeting with relevant coordinating ministry and authorities.

Types of Compensation

Compensation is to be provided in the form of money and/or resettlement.

Amount of Compensation

The recommended amount of compensation remains the same, which is to be calculated by an independent party with consideration of:

  • Cleaning costs of items above the land;
  • Mobilization;
  • Rental cost of at least 12 months; and/or 
  • Compensation for loss of income from land utilization.

Regulation 78/2023 further sets out that the independent party performing the calculation may also take into account the land and/or plant and facilities based on meeting coordinated by the coordinating ministry and relevant authorities.

Delegation by the Governor

The Governor may delegate his/her rights under the Community Impact Regulation to: (i) the Regent (Bupati), where the land is located; or (ii) the head of the relevant authority, if the land is located in a free trade and port zone (kawasan perdagangan bebas dan pelabuhan bebas). For example, if the land is located in Batam free trade and free port zone, the Governor may delegate his/her authorities to the head of Badan Pengusahaan Batam.

1 Under Regulation 12/2023, Badan Usaha (Business Entity) is defined as the legal entity conducting toll road management activities.
2 Under Regulation 12/2023, TPT is a team appointed by the MOPWH to manage funds of the business entity for the purpose of toll road land procurement.

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